Cougar, which along with
Carbon Energy
and
Linc Energy
, is one of the most advanced players in UCG, received an order last Friday from the Queensland Department of Environment and Resource Management (DERM) to cease operations at its Kingaroy project.

The order related to groundwater testing in and around the project which recorded high levels of dangerous chemicals such as benzene.

Both Carbon Energy and Linc Energy were also ordered to conduct environmental evaluations of their UCG projects.

Subsequent testing on the weekend confirmed Cougar’s position that the original tests were incorrect, with results showing minor levels of contaminants well within Australian drinking water standards and up to 600 times less than those in the air at a suburban petrol station.

Cougar’s position, that the original readings were incorrect, was backed up in a letter from the laboratory that studied the samples.

The state’s Natural Resources, Mines and Energy Minister,
Stephen Robertson
, said he told UCG representatives yesterday that while the circumstances of each project would be evaluated individually, the Cougar contamination incident raised concerns for the whole sector.

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“I made it clear that each company needs to understand we will take no risks when it comes to environmental performance and this will be the key factor in determining the future of underground coal gasification in Queensland," Mr Robertson said.

DERM director-general John Bradley said “frequent" monitoring at the sites would continue over the coming weeks.

The UCG sector has had a short but controversial history in Australia. It has long been at loggerheads with the coal-seam gas sector, competing for access to coal resources.

Coal-seam gas production involves extracting methane molecules within coal fractures; UCG involves igniting the entire seam underground with the resulting gases brought to the surface and used to generate power.

The coal-seam gas sector has been critical of the environmental impact of UCG, arguing the technique can generate high carbon emissions and cause major ground subsidence.

Queensland Resources Council chief executive Michael Roche said the industry had agreed to co-operate with the state government over increased testing, but admitted the confusion over the Cougar incident could damage the gas sector.

“We made it clear the world is watching how the Queensland government and regulator perform over the coming weeks," he said. “The local industry is fully co-operating. It has nothing to fear and is providing all relevant information to the government."

But some in the UCG industry believe they have been unfairly treated compared with the coal-seam gas sector. DERM’s approach to Cougar compares with the Queensland government’s decision to approve two coal-seam gas projects despite the state’s Co-ordinator-General flagging concerns about the industry’s long-term groundwater impact.

Cougar could come out of a trading halt as early as today. IG Markets analyst Ben Potter said any weakness in Cougar shares as a result of the testing could lead to courting from coal-seam gas players interested in the company’s coal seams.